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April 10, 2007

Leave The AMT Be

Daniel Gross writes:

The Republicans' main argument against Democrats is that they'll raise taxes by letting the Bush tax cuts expire in 2010. Fix the AMT now and it will simply allow Republicans to argue that the Democrats are raising taxes in 2007 and 2008, too. What's more, fixing the AMT permanently provides all the drawbacks of responsible tax cutting with none of the benefits. The point of fixing the AMT is to shield millions of Americans from future tax increases. But Americans, who are instant-gratification addicts, would sooner vote for somebody who cuts taxes by $1,000 today than for someone who spares them a tax hike of $2,000 tomorrow.

Would Democrats suffer political backlash? Probably not. The AMT's victims will be concentrated in states in which Republicans are not likely to be all that competitive in 2008. In the home of Bushenfreude, middle-class and well-off voters already tend to blame Bush and his Republican associates for everything that has gone wrong. And well they should, given the GOP's shocking fiscal irresponsibility under Bush. It would be easy to fault them for the AMT crisis, too.

When the crisis peaks, Democrats can offer their alternative: fix the AMT, which would then be hitting millions of middle-class voters by rolling back the Bush tax cuts on the very rich. That's a political argument they will win. What they shouldn't do is try to repair the AMT problem too soon, before the catastrophe next April. Fixing it before taxpayers feel the sting would be better fiscal policy—but lousy politics.

That's a plausible read. What worries me, though, is that rolling back the Bush tax cuts to do nothing save replace portions of the AMT is a revenue neutral strategy. Democrats need to actually raise revenues for things like health care -- and part of that may mean restoring the tax cuts under the rationale of channeling that cash towards universal coverage, as John Edwards is promising.

That said, Gross makes some good points on the politics of taxes. Waiting till next year, with the expiration of the Bush tax cuts and the roaring return of the AMT will allow for quite a bit of energy behind tax reform. That moment should be used not simply to fix the AMT, or to roll back the Bush tax cuts, but to actually reform the tax code, as needs to happen every couple of decades when the numbers of deductions and quirks and loopholes and cheats becomes too unwieldy. A more flexible, fair, and progressive structure would be good for the country's fiscal situation and good for progressive priorities into the future.

April 10, 2007 in Taxes | Permalink

Comments

Capital gains and dividend income are shielded from the AMT. That should be rectified in any event.

Posted by: RT | Apr 10, 2007 11:19:25 AM

Stay out of my wallet, you communist!

Posted by: FoolsMate | Apr 10, 2007 11:55:27 AM

...rolling back the Bush tax cuts to do nothing save replace portions of the AMT is a revenue neutral strategy. Democrats need to actually raise revenues...

Liberals want to raise taxes....So who is surprised?

Posted by: Fred Jones | Apr 10, 2007 11:59:32 AM

Foolsmate -

Only if you stop using the roads I'm paying for, the police force I'm paying for, the fire department I'm paying for, the military I'm paying for, the airport security I'm (now) paying for, the diplomatic corps I'm paying for, the schools I'm paying for, and, well, pretty much every other piece of public infrastructure I'm paying for.

Posted by: NonyNony | Apr 10, 2007 11:59:47 AM

Stay out of my wallet, you communist!

This
is exactly the same healthcare analysis and plan of action from the 'progressives'. Comb through this and tell me if you can find any difference other than the name.

Say it ain't so


Posted by: Fred Jones | Apr 10, 2007 12:16:30 PM

Fred - government spending determines the level of taxes over the long run; it all must be either paid for or defaulted on eventually, and default's not really an option for the world's sole superpower, if it wants to keep on being one.

It doesn't matter whether it's universal health care, the Iraq war, subsidies to Big Energy, or what: if the government spends money, it's a tax hike, either now or later.

Posted by: RT | Apr 10, 2007 12:48:18 PM

NonyNony,
You've conveniently left out the (to most people, highly objectionable) big ticket socialist nanny-state utopia economic interventions you want to increase taxes for: cradle-to-grave health care, expanded welfare and social security, free university level education, various labor and trade protections, global warming mitigation etc.

I'll gladly pay for roads etc. -- I didn't say I was against ALL taxes lol--and happily decline subsidizing deadbeats and shirkers.

Posted by: FoolsMate | Apr 10, 2007 12:56:21 PM

Increasing taxes to pay for health care is not a zero sum game for individuals. It would likely be partially offset by: higher wages (employers would not be paying for insurance) and spending less money directly on health care (co-pays, premiums, etc.).

Moreover, the average satisfaction is significantly higher in government run health programs than private insurance (though that cost isn't necessarily tangible).

Posted by: DaveInTheCorn | Apr 10, 2007 1:56:44 PM

The AMT doesen't need fixing.

Posted by: DRR | Apr 10, 2007 3:14:01 PM

The AMT doesen't need fixing.

No....eliminated. If you don't like "preference items" such as municipal bonds that are tax exempt, then get rid of the darn things. To have this parallel, stand-alone tax system with it's own tax rates and it's own rules simply doubles the complexity and expense of tax collection.

Posted by: Fred Jones | Apr 10, 2007 5:24:21 PM

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Posted by: judy | Sep 28, 2007 5:21:39 AM

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